Yesterday, the U.S. Department of Labor (DOL) issued new guidance on “economically targeted investments” (ETIs) for pension funds. ETIs are a type of impact investment that seeks certain social goals alongside a market-rate financial return.

The new guidance rescinds the DOL’s 2008 interpretive bulletin related to ETIs—which is widely considered to have had a chilling effect on ETIs—and reinstates the language of the 1994 interpretative bulletin of a fund manager’s fiduciary duty under the Employment and Retirement Securities Act of 1974 (ERISA). Specifically, the guidance clarifies that fiduciaries of ERISA-governed pension funds “may consider (social and environmental) goals as tie-breakers when choosing between investment alternatives that are otherwise equal with respect to return and risk over the appropriate time horizon.”

The guidance also states that “environmental, social, and governance issues may have a direct relationship to the economic value of the plan’s investment,” and thus these issues “are not merely collateral considerations or tie-breakers, but rather are proper components of the fiduciary’s primary analysis of the economic merits of competing investment choices.”

As co-sponsors of the Accelerating Impact Investing Initiative (AI3), we commend the DOL for issuing this important guidance. The new rules open the door for more fund managers to consider the social and environmental impact of their investments while fulfilling their fiduciary duty to pension holders and beneficiaries. In the coming weeks, our organizations will release an issue brief with case studies of ETIs currently being pursued by public and religiously-affiliated pension funds—funds not directly governed by ERISA—which could serve as models for other pension funds.